Tuesday, June 16, 2009

Ten Day High Followed By Ten Day Low

We had a 10-day closing high on Friday in the S&P 500 Index (SPY) followed by a 10-day closing low on Monday. It turns out that this is an unusual reversal. Since 1990 (N = 4895 trading days), there have only been six occasions in which this has occurred.

While six occasions is hardly a sample from which we can build a robust analysis, it's worth noting that the market was down subsequently on a five and ten day basis on four of the six occasions by averages of -.22% and -.76% respectively.

Although there are often occasions when buying stocks following weakness is indicated, there is nothing to suggest a positive edge following a reversal such as we saw on Monday. This fits with my earlier analysis of what happens following strong downside momentum days.